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June 27, 2013

Global Asset Managers’ Revenue Passes 2007 Peak

Casey Quirk study challenges managers to adapt and innovate

A benchmarking analysis released Wednesday by Casey, Quirk & Associates showed that the global asset management industry’s revenue last year passed its previous 2007 peak, lifted by market appreciation.

Median pretax operating margins rose to 32% in 2012, the highest since 2007, for participants in the study’s survey of 101 privately held, publicly traded and wholly or partly owned firms with assets under management ranging from below $50 billion to more than $1 trillion in assets.

In aggregate, these managers invest $23 trillion for institutions and individuals.

However, the study also showed net inflows of 1.2% last year, compared with 3.7% in 2007. This, along with increasing fee pressure and a widening economic divergence among firms, points to growing industry challenges, according to the analysis.

“With annual net flows of under 1% anticipated through 2017 these findings, based on one of the largest industry surveys of asset management economics, indicate managers must adapt and innovate to keep up let alone to continue thriving,” Kevin Quirk, a partner at Casey Quirk, said in a statement.

According to the analysis, conducted with compensation consultant McLagan, traditional investment products will continue to be challenged, while outcome-oriented and higher alpha strategies will result in the highest net flows. The latter include hedge funds, balanced strategies, global tactical asset allocation and multi-asset class solutions, emerging-market debt and global equities.

The benchmarking study showed that privately held and publicly listed asset managers expanded at average annual rates of 8.4% and 7% respectively during the 2007–2012 period.

Firms owned by larger financial institutions had average annual growth rates of 4.3% over the same period, while revenue at affiliates of asset management holding companies fell on average 4.6%.

Of the firms surveyed, those in the middle managing assets between $50 billion and $200 billion saw their operating margins rebound most strongly, to 32% in 2012 from a low of 15% in 2009. They were also most consistent in attracting net flows between 2007 and 2012.